Big I Virginia, Fall 2014 by Blue Water Publishers, LLC

BIG I The

Official Publication of the Independent Insurance Agents of Virginia

Virginia Fall 2014

How to Hire Top Agents Competition for New Employees Tips for New Employee Orientation

a l p c e o a t c d c r o a u h n a t ? h t i w g n i l t Wresn take the bite out of even the toughest risks. JSA ca

ks. s i r l a u s u n u JSA writes reptile zoos and other

We specialize in writing all types, sizes and classes of transportation • Business Auto

• Limousines

• Contractors

• Logging

• Courier Services • Church Vans

• Owner Operators

• Day Care Vans

• Social Services

• Dump Trucks

• Truckers

• Fleets • Hotshots

(Local/Intermediate/ Long Haul)

• Wreckers

Speed to market is vital in today’s world. Our “in-house” underwriting and pricing authority through A-rated carriers allows us to offer immediate quotes and binders. Whatever road your client is on ... we have you covered.

Call Us Today!

EDWIN M. ROLLINS COMPANY

Toll Free: 800.432.7715 RPSins.com

A Subsidiary of Risk Placement Services, Inc. Serving the Transportation Industry Since 1946 Fall 2014 • THE BIG “I” VIRGINIA

FALL 2014

BIG I Official Publication of the Independent Insurance Agents of Virginia

IIAV STAFF

Virginia

Nettie Ardler, CPIW, DAE, AIAM Insurance Account Executive aardler@iiav.com Robert N. Bradshaw, Jr., MAM President & CEO rbradshaw@iiav.com cell (804) 929-4134 Teri Chester Executive Secretary/ Receptionist & Membership Coordinator tchester@iiav.com Natallia Chyhryna Accounting Assistant natallia@iiav.com Sherry Grubbs, AISM Accounting Manager sgrubbs@iiav.com Joe Hudgins, CPCU Technical Consultant jhudgins@iiav.com cell (804) 929-4138 Bonnie Joyce Insurance Administrative Assistant bjoyce@iiav.com Melanie Kjar Communications/Website Director mkjar@iiav.com Linda Loving, CIC, AISM, AIAO IIAV Chief Operating Officer & VFSC Executive Vice President loving@iiav.com cell (804) 929-4133 Danny Mitchell Vice President Business Development dmitchell@iiav.com cell (804) 929-4135 Susan E. C. Perkins Membership/Education Coordinator sperkins@iiav.com

Kristina Preisner IIAV Director of Education & VAIA Executive Director kpreisner@iiav.com Marie Toney Sales Associate mtoney@iiav.com cell (804) 929-4136 Bonnie J. Warren, ACSR, CPIW, DAE, RPLU Insurance Account Executive bwarren@iiav.com James West Director of Finance jwest@iiav.com

THE BIG “I” VIRGINIA • Fall 2014

IIAV is an organization devoted to promoting, enhancing, serving and assisting independent insurance agents.

The Big I Virginia is a publication of the Independent Insurance Agents of Virginia 8600 Mayland Drive, Richmond, VA 23294 Phone: 804.747.9300 / Toll-free: 800.288.IIAV (4428) Fax: 804.747.6557 E-mail: members@iiav.com / Website: www.iiav.com

Inside this issue

The

Message from the Chairman of the Board - William H. Talley, IV, CIC

Message from the State National Director - James P. Bradner

Message from the President and CEO - Bob Bradshaw

How to Hire Top Agents

Tips for New Employee Orientation

2014 Annual Convention Sponsors

10th Annual Young Agents Conference Information

10th Annual Young Agents Conference Registration Form

Margin Clauses and Blanket Insurance

Overview: Standard vs. Non Standard; Admitted vs. Non Admitted

Insuring For the Business Risks of a Cyber World

IIAV extends our appreciation to the following sponsors of this publication: AAA Mid-Atlantic 42 Agents Insurance Markets 43 Amerisafe 39 Anderson and Murison 30 Atlantic Specialty Lines 13 Atlas General Services 39 Brethren Mutual Insurance Company 18 Builders Mutual Insurance 47 Burns & Wilcox 9 Eastern Insurance Holdings 37 FCCI Insurance Group 37 GUARD Insurance Group 32 Harford Mutual 39 Harleysville Insurance 48 Interstate Insurance Management 35

ISU Agency Network 11 JMWilson 45 Jackson Sumner & Associates 2 Johnson & Johnson 24, 25 MEMIC 33 Millers Mutual Group 7 Nationwide 27 Penn National Insurance 15 Preferred Property Program 28 RPS Rollins 3 SIAA 34 Southern Insurance Company of VA 29 The Iroquois Group 5 Utica National 30

For information on advertising please contact: Jim Aitkins, Blue Water Publishers, LLC / 22727 161st Ave SE, Monroe, WA 98272 phone: 360.805.6474 / fax: 360.805.6475 / jima@bluewaterpublishers.com

The Big I Virginia is a publication of the Independent Insurance Agents of Virginia and is published quarterly by Blue Water Publishers, LLC. IIAV and Blue Water Publishers, LLC do not necessarily endorse any of the companies advertising in the publication or the views of its writers.

Strong Agencies Made Stronger

For over 30 years Iroquois has helped make strong, independent agencies even stronger and more independent. And it shows.

LEADERSHIP Iroquois recognizes some of its members who have recently played key leadership positions within the industry: Ryan M. Andrew

Douglas B. Megill

John W. Atkins, III

Crystal Miller-Johnson

Barry K. Carper

J. Vince Mullins

W. Montgomery Dise

Michael Partlow

Dawn Dotson

Jordan Reynolds

Michael F. Funkhouser

Robert T. Short

Frances P. Garrett

Dennis C. Winfree

Shannon H. Herring

Benjamin G. Winters

VFSC Board of Directors The Andrew Agency, Inc.

District 5 Director, IIAV McLean Insurance Agency, Inc.

President, VFSC Board of Directors Lewis Insurance Associates Immediate Past President, PIA of VA & DC Insurance Center of Winchester Second Vice Chair, IIAV Asset Protection Group, Inc.

First Vice Chairman, IIAV Associated Insurance Systems Services, Inc. Board Member, PIA of VA & DC Huffman Insurance Agency, Inc. VFSC Board of Directors Partlow Insurance Agency, Inc.

VAIA Board of Directors Robins Insurance Agency, Inc.

Independent agents with premium from $1 million to $100 million join The Iroquois Group® for market optimization and strategies to increase their revenue, profits and agency value—without giving up their independence.

Board Member, PIA of VA & DC SWVA Professional Insurance Agency, Inc.

Vice President, VFSC Haun Magruder Inc.

Immediate Past Chairman, IIAV Short Insurance

Past President, PIA of VA & DC Chas. Lunsford Sons & Associates, Inc. Young Agent Liaison, IIAV Hubbard Insurance Agency, Inc.

VAIA Board of Directors Wood Insurance Agency District 3 Director, IIAV Winters Oliver Insurance Agency

Edward C. Kellam, Jr. District 2 Director, IIAV Ware Insurance

The

IROQUOIS Group

To learn more about how Iroquois could further strengthen your agency, contact Matt Ward at 804-320-6984 or mward@iroquoisgroup.com and visit our website at www.iroquoisgroup.com

Fall 2014 • THE BIG “I” VIRGINIA

Chairman of the Board William H. Talley, IV, CIC wht4@whts.com

s an Agency Principal, what is the most important asset that is shown on an agency financial statement? Many of us would quickly respond by saying Cash, Investments or Net Revenue. That was a trick question. The most important agency asset does not even appear on your agency financial statements. The answer is the Human Capital Asset – your employees! A firm’s success is not possible without each person’s individual skills and talents contributing toward the overall vision & goal of the agency. You must have your people in the right seats on your agency bus, heading in the right direction on the road to success so that they are all happy to be along for the ride. Hiring and replacing employees is costly. Fixed costs of hiring new employees include recruiting fees, costs associated with posting the position, referral fees paid to employees, as well as costs related to licensing and outside training. Hidden costs are more difficult to quantify. These costs include the knowledge lost when a trained employee leaves, lower

productivity for the individuals who need to assume additional work until the position is filled, and the time spent reviewing resumes, interviewing candidates and making job offers. There are also costs associated with internal training. A knowledgeable team member must train a new employee on an agency’s processes and procedures, as well as spend time checking their work, until the new employee is up to speed. Similar to other areas of the business, an agency should develop a plan to hire and retain new employees. Many firms have not invested the time, or money, to build strong employee retention strategies that include career paths and corresponding compensation, clearly defined job descriptions, on-going meaningful performance evaluations, and effective onboarding and training programs. Employees, as previously stated, are the most valuable asset of an insurance agency. Hiring the right people, reducing employee turnover and increasing employee satisfaction can position an agency for sustainability. Employee turnover is not preventable. The goal is to retain the key employees who can propel your agency forward. [continued on page 8]

THE BIG “I” VIRGINIA • Fall 2014

Fall 2014 • THE BIG “I” VIRGINIA

When hiring a producer, the interviewing and hiring process is crucial. As agency principals we as a group have probably interviewed and hired less than a dozen producers during our careers. We don’t have much experience or practice in the process. We interview to see if we “Like” someone and whether that person will “Fit” in our agency. We ask questions about their past experience in sports, as if having a competitive nature is all that is needed to succeed in sales. In other words, we interview first for “Chemistry”, second for “Character”, and if we get around to it at all, we interview for “Competence” last. This should be reversed. We should interview for competence first. Does the candidate have the required DNA and skill set to succeed? This includes desire/drive, commitment, responsibility, and a positive outlook. Just as a basketball coach can’t coach height, no trainer or mentor can coach these traits. The candidate either has them or doesn’t. We should next interview for Character. Integrity, and especially integrity under peer pressure, is a key trait in an ethical salesperson. As we get the answers to our questions in these two categories, we will learn the answer to the Chemistry question. Interview questions should be phrased, “What have you done?”, rather than “What would you do?” Too often agency principals paint a scenario and ask “what would you do in this situation?” Smart people may provide a reasonable answer, but we don’t learn whether or not they have the fortitude to follow through. For example; “You receive a call from an irate customer who is angry about a $30,000 additional premium audit he had no idea was coming. What would you do?” The answer might be something like I’d listen, then explain, and perhaps even show the customer our old proposal where it was outlined, etc. What

THE BIG “I” VIRGINIA • Fall 2014

you don’t learn is whether the candidate can actually hold his own with an irate customer. Will he back down and surrender or will he persevere? A better way to ask the question is in the “Performance Based Interviewing” style. “Tell me about a time when someone was thoroughly aggravated with you. What were they angry about? What did you do about it? And what was the result?” The answers to these three questions require the candidate to describe an event that actually happened in his or her life. You will learn about their courage, their problem solving abilities, and their ethics in the way they handled a tough situation. Finally, let’s clearly define the expectations of the producer candidate we hire. If we do, we can “Hire and Fire” on the same day. By this I mean the candidate can monitor his own progress at each stage of the validation period, and know whether he is succeeding, or is on thin ice. The time period for validation should not exceed 36 months. Whatever the producer candidate is earning at that time needs to be covered by three times that amount in revenue produced. If you’re paying a candidate $40,000 a year they should have a minimum of $120,000 in revenue on the books by year three. The line of reasoning is that a producer is worth one third of the revenue dollar. Another third covers overhead for heat, power, rent and salaried employees. The final third should go to profit and retained earnings for the owners. If the producer knows what is expected and falls far short, he or she will not be surprised when you call them in for a heart to heart. Acquisition cost is very high when bringing a new producer into the agency, so we need to improve our odds by Changing the Game. We need to Hire Right – Train Right – Mentor Right to have success and grow!

Even the office coffee tastes better with Burns & Wilcox. PERSONAL INSURANCE

Your traditional insurance markets can handle most of your clientsâ&#x20AC;&#x2122; personal insurance needs, but not all. Even wholesalers have their limits, unless your wholesaler is Burns & Wilcox. As the largest personal insurance wholesaler, our unequaled access to markets means quick solutions for all your hard-to-place risks. Donâ&#x20AC;&#x2122;t call just any wholesaler. Just call Burns & Wilcox. Baltimore, Maryland | 410.891.4200 | toll free 800.729.1273 | fax 410.540.9140 | baltimore.burnsandwilcox.com Charlotte, North Carolina | 704.525.1152 | toll free 800.999.3434 fax 704.525.7399 | charlotte.burnsandwilcox.com Morehead City, North Carolina | 252.726.8992 | toll free 800.498.1600 fax 252.726.9484 | moreheadcity.burnsandwilcox.com

State National Director James P. Bradner jbradner@towneinsurance.com

his year is going by fast! And there’s a lot going on! If you watched the Soccer World Cup then how could you pass up the World Lacrosse Championships, played like soccer, but with loosely strung tennis racquets. This tournament, like the World Cup, is played every four years. And the presenting sponsor? Trusted Choice, of course. There were hundreds of “mentions” of Trusted Choice on ESPN and her related stations over the 10 days of the tournament in Colorado. Have you seen the Trusted Choice commercials on CNBC? Our National Association is working hard to rebrand the members of our association as Trusted Choice. If you haven’t co-branded with Trusted Choice you should talk to Danny Mitchell at IIAV about the benefits available to your agency. Two other programs that are receiving a lot of support and attention are FIND A MARKET and NEED AN AGENT. Nationally, the BIG “I” Markets program is showing steady growth and has proven to be a valuable asset. Finally, I want to thank everyone who contributed to our National PAC, INSURPAC. Virginia made our goal for the first time in history and the National PAC ended at over $1,000,000….and that is a big deal in D.C. Our influence was felt on the issues of flood, TRIA, and NARAB II. Please continue to support INSURPAC with $50 or $100 …or more !

THE BIG “I” VIRGINIA • Fall 2014

Join the Best Network in the South

CHARLOT TE RALEIGH

AT L A N TA COLUMBIA

ISU Members Earn More and Enjoy More Benefits:

Receive Increased and Direct Carrier Access

ember UM

12 A v e r a g

Receive 100% of Policy Commissions

628%e

Earn Profit Sharing from First Dollar with No Minimum Requirements Own 100% of their Book and Client Relationships Suffer NO Contract Termination Fees or Penalties for Carrier Access Restrictions

Join the Select Independent Agents Nationwide who Share a Unique Competitive Advantage ISU – The Power of Independence and the Strength of Unity Over 160 Offices and 1700 Professionals accessing over 300 Carriers Nationwide

Go to www.Join ISU.com or call 877-500-4478

The ISU Agency Network Fall 2014 • THE BIG “I” VIRGINIA

President and CEO Bob Bradshaw rbradshaw@iiav.com

There’s competition for employees…. and it’s coming from everywhere!

recently attended a hearing of the Small Business Commission and the topic was primarily on employee training needs for small businesses. Presentations were made from a number of governmental groups – such as the community college organization – and all discussed the coming need for a significant number of employees to keep the economy growing. Training requirements were discussed, and the undertrained quality of high school students was also discussed. While I expected concern from any number of professional organizations, I found it interesting when a presentation was made by a training advisor for the Virginia Manufacturers Association. She presented that they first had to convince prospective employees that “manufacturing” was something to consider in the first place as a future employee. The perception of people was that manufacturing was not an avenue for future employment. I had to laugh because we have faced that barrier, too. Kids today have a very different and sometimes not complimentary perception of the insurance industry or for working in our profession – regardless of the fact that we have so much to offer. IIAV works hard to get into our high schools, community colleges, and traditional colleges to encourage students to consider insurance as a

THE BIG “I” VIRGINIA • Fall 2014

professional opportunity. I know I try to combat misperceptions of our industry through my work on the VCU Advisory Board. While most of the students I meet at VCU’s insurance program are looking for company employment, I want them to have a good understanding of the independent agency system and the employment opportunities we provide. You have to admit, it’s an exciting profession and, at the very core, it’s a profession designed to help people when they need it most. How many other professions can say that? In order to grow, we need to bring more people into our profession and industry. We encourage you to work with IIAV, but also directly with your community. Reach out to your local high school guidance counselor. Contact your local community college and find out what they are doing in the customer service area of training. CSRs and producers are our most important business vehicle and their training and care is most important. I remember seeing a truck on I-95 once and on the back it said something to the effect of, “Sitting 52 feet ahead is our most valuable asset,” of course referring to the truck driver. It’s about time we also start treating our account managers and producers as our most valuable assets.

ATLANTIC SPECIALTY LINES the “A” way — Attitude, Assistance, Adaptability

DON’T WEATHER THE STORM ALONE! The 2014 Storm Season is upon us. Are YOU prepared? Past year weather disaster estimates have exceeded $60 billion dollars. The National Oceanic Atmospheric Administration (NOAA) predicts that climate signals and evolving oceanic and atmospheric conditions indicate that an active Atlantic hurricane season is likely in 2014. The 2014 Atlantic hurricane season is predicted to produce 8-13 named storms, of which 3-6 are expected to become hurricanes, and 1-2 are expected to become major hurricanes.

How has Atlantic Specialty Lines prepared to ride out the storms and assist our customers? All of ASL’s servers are located off site in a bunker that has back up power and diesel generators.

We have an offsite location in Richmond, VA with backup generator power, should our home office be inaccessible.

GREG PROVENZO President - ASL of VA O: 804.474.1568 C: 804.338.2221

Two back up internet connections are available for access to our servers from anywhere in the world.

All policies and file documents are imaged (paperless), thus we can immediately access all files for you and your clients.

DAVE ADCOCK Vice President - Commercial Lines O: 804.474.1571 C: 804.398.0998

ASL CLAIMS : claims@atlanticspecial.com

800.368.2095 | www.AtlanticSpecial.com

How to Hire

TOP AGENTS

By John Chapin

ith all the advances in every area of life, you’d think hiring the right agents would be an exact science at this point. It isn’t. Hiring the right people is a combination of science and philosophy and you have to utilize both effectively to hire someone who ultimately “makes it.” Here are the aspects to “employ” in order to employ the right agents. Keys to Hiring Top Agents Hiring tip #1: Only hire employed winners. An unemployed agent or salesperson out looking for a job is a major red flag. Unless someone’s company just blew up, or there is some other crazy extenuating circumstance, an agent or salesperson looking for a job should, at the very least, still be employed. That said, an employed agent out looking for a job is a yellow flag. People

THE BIG “I” VIRGINIA • Fall 2014

do switch jobs for a variety of perfectly legitimate reasons related to family or other solid personal reasons; just make sure the reason is a good one and they can back up the stellar sales skills they claim to have. In reality, most agents are looking for a job because they can’t sell and they either got let go, or are about to. Don’t hire someone else’s problem without A LOT of due diligence. Hiring tip #2: Only hire within your industry if you recruited the person. If you find a stellar agent you want working for you instead of the competition, great; otherwise, avoid your industry like the plague. Someone within the same industry looking for a job elsewhere does so because they can’t sell. Again, unless there is an extenuating circumstance with the company or product, the problem is the salesperson.

We look for the best independent agents and build relationships that last the duration. We are committed to the independent agency system as the only means to deliver our products. Because of that, we work hand-in-hand to help our agencies grow profitably.

Our agents set us apart. Business • Surety • Auto • Home

www.PennNationalInsurance.com Visit our website to find out more. Fall 2014 • THE BIG “I” VIRGINIA

Hiring tip #3: Always be on the lookout for good agents. Even if you are not hiring right now, build your list of candidates for when you are. That great salesperson who just sold you your car, boat, or home alarm system is a good prospect to come work for you now or at some point in the future. It’s simple, winners win. A winning salesperson in another industry can learn to sell just as effectively in your industry. Also, truly great salespeople can make the transition from products to services and from phone sales to inperson sales and vice versa. Hiring tip #4: Hire self-esteem, self-confidence, and the right attitude. Lacking any of these three is the number one reason agents fail. A lack of activity, blaming the economy and other outside circumstances, and ultimately not doing what needs to be done every day whether you feel like it or not, all come down to an issue with one or all of these three. Also, you want someone with a strong work ethic who is seeking a career instead of a job. Hiring tip #5: Have a hiring process. Have several people put their eyes on a potential hire. Meet all their decision makers such as spouses. Do all your testing, check all paperwork, cross all your T’s and dot all your I’s. Don’t take shortcuts. Have a process and stick to it like a pilot doing preflight. Hiring tip #6: Shake up the testing process. Telling an applicant you are about to hire that they did not get the job, bringing them to an event with an open bar, playing golf with a candidate, or visiting them at their home, are some great ways to find out what people are really like. While you should absolutely use personality tests, in-office interviews, and other standard, accepted hiring practices as your foundation, realize that most tests can be beaten, and most people can put their best mask on temporarily. To find out what people are really like, move them out of the typical hiring environment. Hiring tip #7: Be skeptical of references, especially personal references. Anyone can find a brother-in-law, friend they went to college with, or a third cousin twice removed to say 16

THE BIG “I” VIRGINIA • Fall 2014

the candidate is the best thing since the wheel. If they are that good, the wheel never would have been invented. for them… Be wary of people who lead by asking what the base or draw is and what benefits they will get. Hiring tip #9: Candidates should be transparent and forthcoming. Yes, applicants should be willing to give you access to all their social media information, and all their other information for that matter. That said, you should be able to find enough information on applicants without having to get social media passwords. It’s just another good test to see if the applicant may have something to hide. Also, someone with a very small or no online footprint is an orange flag. Investigate further. Hiring tip #10: Have standards and stick to them as if your life depends upon it… Because the life of your business does depend upon it. In addition to hiring standards, you need performance standards and time lines that are agreed upon. Accountability is extremely important. Hiring tip #11: Hire slowly and fire quickly. Do the work and don’t cut corners. A lot of work on the front end will avoid a lot of pain once you hire the person and they don’t work out. Also, once you realize you have a duck instead of a swan, and they are not living up to the standards agreed upon under tip #10, cut the cord fast. Hiring tip #12: Provide the right environment. It doesn’t help to hire the right people if you bring them into an environment where chronic underperformers, negative people, a lack of support, and other similar cancers exist. John Chapin is a sales and motivational speaker with 26+ years of experience as a #1 sales rep. For his free newsletter, or if you would like him to speak at your next event, go to: www.completeselling.com. John is also the author of the 2010 sales book of the year: Sales Encyclopedia. For permission to reprint, e-mail: johnchapin@completeselling.com

Tips for New Employee

ORIENTATION

By Sallie Biitner, Contributor – Affinity HR Group

o you are taking on a new employee. As a hiring manager, you have invested a lot. You curtailed other priorities to spend time and energy on the recruitment and selection process. Your time is money to your business. So make your investment in hiring count by extending it into his or her first days, weeks, and months on the job to ensure your new hire will be successful and productive. Tips for New Hire Orientation After the job offer has been accepted and before he or she has come on board, stay in touch with the employee. Check in frequently before the start date. Ask if there are any questions. Make sure he or she has all the information needed to be prepared for day one. Not only will this help make the new hire feel valued, but it will deter any competing interest from other employers. On the first day, the most important thing to remember is that your new hire is excited about his or her new job. Make that first day special – be excited about your new hire! Have a special welcome ready, have your new hire’s workspace ready, and if possible, have business cards ready. Make your new hire feel like he or she is expected and welcome in the new job. The goal is to show your new hires that you are as excited about them joining your company as they are! Of course there are the formal things one does to orient a new employee on the first day(s) on the job.

Be sure to: • Provide the employee handbook and obtain acknowledgment that the handbook has been read and understood • Collect all payroll and benefit information • Highlight specific policies and procedures that are important on the job • Discuss appropriate workplace safety and health topics • Provide training on equipment and processes and procedures, and • Cover any position-related topics such as supervisory responsibility, duties and responsibilities and expectations of the new hire. But don’t stop there – the informal things are just as critical. Aside from the payroll and benefit sign-up, basic safety, equipment and scheduling topics, take the time to talk about the unique aspects of your company’s culture. For example, how important is the matter of being on time? Are there unwritten rules about meeting attendance, dress, voicing opinions? And don’t forget to cover smart-phone usage and social media access while at work. Talk about it! A successful first week is clearly the hiring manager’s responsibility. Therefore, you should plan for it as you would any other important business activity. Nothing should be more important to your schedule that week Fall 2014 • THE BIG “I” VIRGINIA

than being accessible and carving out time each day to meet with your new hire. Create a schedule for him or her for the first weeks including what meetings to attend, what materials to read, and who to meet and speak with. Arrange those meetings yourself in advance. Also, have someone provide basic training on technology. Cover topics such as the business cycle, important initiatives, key client projects, management styles and communication preferences of key people, how meetings are run (whether formal with agendas or informal), where and when to take ideas and concerns. If the new employee has supervisory responsibilities it is especially important for you, in advance of the start, to meet with the team and present the new supervisor’s background – why the selection was made and what to expect. This will address the team’s unease during the transition and also will allow the new supervisor to move into high gear. High gear is good, but not before you are assured the new hire understands your expectations, the company and its operating culture. Be sure to cover your performance expectations, and particularly how goals and performance assessments are conducted. Arrange for any essential training and ensure that there is awareness of company and department goals.

Finally, make sure you schedule periodic check-ins in the weeks and months that follow. Studies show that 22% of employees quit their jobs within the first 45 days, which is not really surprising – the learning curve for any position is longer than anyone ever expects. If your new hire feels supported in the first six months, you will improve the likelihood that he or she will stay engaged and committed. (Note: We have developed an employee development template to help managers structure and communicate the new employee’s learning objectives and to provide a structure for ongoing feedback during the first few weeks and months. Send us an e-mail at contact@ affinityHRgroup.com to receive a free copy. ) By seeing the new employee as a business investment, your dedication of time and attention will ensure an optimal return, enhancing his or her ability to more quickly get up to speed and deliver value to the company. Sallie Biitner is a contributor for Affinity HR Group, LLC, IIAV’s affiliated human resources partner. Affinity HR Group specializes in providing human resources assistance to associations such as IIAV and their member companies. To learn more, visit www.affinityHRgroup.com.

S o Ma ny C h o ice s . S o Ma ny Voi ce s . Consider the Brethren Mutual Advantage.

Our People! Connie Kim

Sherry

Justin

Terri

Stephanie

Courtney

Missy

Wendy Lisa

Brenda

Nikole

Farm

Carrie

Kim

Tina

Personal

Commercial

Your Virginia underwriters are dedicated to building solid agent relationships. Friendly • Experienced • Accessible For agency appointment information, contact Virginia Regional Manager Ken Jarvis at 540-347-1028.

149 North Edgewood Drive • Hagerstown, Maryland • 21740 • 800-621-4264 www.bmic.com 18

THE BIG “I” VIRGINIA • Fall 2014

Fall 2014 • THE BIG “I” VIRGINIA

Thanks again to our sponsors. Their support makes events like these possible!

THE BIG “I” VIRGINIA • Fall 2014

Fall 2014 • THE BIG “I” VIRGINIA

THE BIG “I” VIRGINIA • Fall 2014

Fall 2014 • THE BIG “I” VIRGINIA

COMMERCIAL LINES

• Real Estate/P • Directors & O • Allied Medica • Architects & E • Employment

• General Contractors • Restaurants/Bars/Taverns • Special Events • Artisan Contractors • Habitational - Dwelling Schedules (Condos/Motels/Hotels/Apartments)

Dascheil Propes, CPCU

Vice President - Sales: NC, SC, VA 919.264.2816 or ddp@jjins.com

• Health Care • Non-Emergen • Artisan Contr • Manufacturin

800.487.7565 www.JJINS.com 24

We have a variety of classes for all your NEEDS!

Prop. Management Officers al Engineers Practices Liability

ncy Medical Transport ractors ng

• Cargo • Contractors • Brokers Liability • Non-Emergency Medical Transport • Garage Service Risks • Public Auto • Local/Intermediate/Long Haul Trucking

Kevin P. Kowar, AU, CIC

VA Marketing Representative 843.607.2702 or kpk@jjins.com

Johnson and Johnson Preferred financing wants to be your number one choice for ALL of your premium finance needs.

Chat with us online at www.jjpf.com! 800.868.JJPF (5573)

Proud to be a member and partner with the AAMGA

Margin Clauses and Blanket Insurance

Make sure you are discussing this with your customers By Mike Edwards, CPCU, AAI Question: “I have an opportunity to quote on a nice commercial property account. In some initial conversations with the prospect, he mentioned that he was unhappy with his present agent, and made some reference to a claim involving a margin clause, where he wasn’t paid the full amount of the loss. He said he does not want a margin clause on his new policy. This is the first time I have run into this issue, and would appreciate a little information about exactly what a margin clause is and how it works, and also, what kind of claim problem it could have caused. In addition, if you can suggest any resources I could go to in order to get additional information, it would be a big help.” Answer: A margin clause is used in blanket insurance as a tool to promote the accuracy of the limits of insurance of the property on the Statement of Values. The incentive for the insured is to avoid the penalty which is possible with a margin clause. It is roughly similar to how “guaranteed replacement cost” (GRC) coverage works in the Homeowners Policy. When GRC was first introduced, it provided great peace of mind to consumers in situations where the replacement cost (RC) of their home exceeded the policy limit. If the insured agreed to insure the home for 100% RC value, and to notify the insurer of improvements of greater than 5% of the home’s value, then the insurer would pay the full RC, even where the limit of liability of the home was insufficient. However, it wasn’t long before flaws in that strategy began to appear. One of the most startling events for the industry was the massive fire losses in Oakland, CA in 1991. Some industry research in the years immediately following the fire showed that insurers paid over 26

THE BIG “I” VIRGINIA • Fall 2014

$270,000,000 in claims in excess of policy limits. There were numerous factors in the huge overpayment, and GRC was just one. However, insurers soon filed amended versions of their GRC endorsement which capped the total amount payable at a percentage (usually 25% or 50%) of the stated limit of insurance. The parallel for Commercial Property policies is best illustrated in a case I recently read about, which reveals the potential problem with blanket insurance and agreed value. The blanket limit on 8 buildings was $21,530,169 – with 100% coinsurance at RC, and Agreed Value. One building suffered a total loss in a tornado. The Statement of Values (SOV) form (CP 16 15) attached to the current policy indicated the value for that building was $1,247,625. However, during the claims process, it was discovered that the actual RC of the building was approximately $2,200,000. Nonetheless, the advantage for this insured to have Agreed Value on a blanket policy is that the full $2,200,000 is paid (less deductible), so long as the blanket limit is sufficient (which was $21,530,169). Note that the Agreed Value option suspends the coinsurance provision, which is why Agreed Value is so frequently used. Understandably, insurers have a polar-opposite view. For one building to have an error of $952,375 (insured 56% to value) is hard to fathom, and suggests extreme carelessness by the insured, agent, and/or underwriter, or possibly fraud or material misrepresentation. For this reason, most insurers require that the insured sign the Statement of Values (SOV) endorsement, although under ISO rules – and the language on the form itself – make signing optional. That document might possibly end up as a Plaintiff’s Exhibit in court one day.

“ I trust NatIoNwIde ®

with my employees’ benefits.” – Dale Earnhardt Jr., NASCAR® driver and owner, JR Motorsports

Dale Earnhardt Jr. and his family joined the Nation more than 30 years ago. That’s why, as a longtime Nationwide member, he trusts us with his employees’ benefits. Nationwide Employee Benefits offers: • Life/AD&D

• Limited Benefit Medical

• Disability

• Accident and Hospital Ca$hBackSM

• Dental

Call Paul Taylor at 734-788-6463 or go to nationwide.com/neb to learn more.

The name and likeness of Dale Earnhardt Jr. and other related trademarks and copyrights are used with permission of Hendrick Motorsports, LLC and JR Motorsports, LLC. Paid endorsement. © 2012 JR Motorsports, LLC. NASCAR® is a registered trademark of the National Association for Stock Car Auto Racing, Inc. The NASCAR Nationwide SeriesTM logo and word mark are used under license by the National Association for Stock Car Auto Racing, Inc., and Nationwide Mutual Insurance Company. Nationwide, the framemark and On Your Side are service marks of Nationwide Mutual Insurance Company. © 2014 Nationwide Mutual Insurance Company. All rights reserved. Underwritten by Nationwide Life Insurance Company. EBO-0156VA (01/14)

Fall 2014 • THE BIG “I” VIRGINIA

More broadly, separate from possible fraud or material misrepresentation, commercial insurers have begun incorporating provisions into their coverage forms which provide safeguards similar to those used by homeowners insurers in the GRC endorsement. The use of a margin clause places a cap on how much an Agreed Value option will pay on a blanket policy. In addition, a margin clause also functions with coinsurance, where applicable. The specific cap on amounts payable under a margin clause with blanket coverage is incorporated into the commercial property policy either by endorsement, or additional language inserted into the coverage form itself. This presents a special challenge for agents. An endorsement is much easier to find than a few sentences added to the body of a coverage form. But either way, it is vitally important for the agent and insured to be aware when a policy contains a margin clause. Many agency quote forms include a notation that a margin clause applies. By way of a general discussion of how a margin 7.5X4.625 clause works, here are some excerpts and commentary General JGS Umbrella ad CP 12 32 06 on the ISO margin clause Program endorsement: 07 – Limitation on Loss Settlement – Blanket Insurance (Margin Clause), which was introduced in the 2007 ISO commercial property forms revisions. Keep in mind that many insurers might have their own proprietary version of

a margin clause endorsement, or have modified their coverage form itself to incorporate essential margin clause language. A margin clause can be applied to buildings as well as business personal property. The first section of the CP 12 32 is a Schedule which indicates which premises and type of property is subject to a margin clause, and what the margin clause percentage is. Under ISO Commercial Property Manual Rule 34.B.6., the margin clause percentages for which a rating factor is provided are 105%, 110%, 120%, and 130%. Proprietary forms and rules might be different. Here are excerpts from the CP 12 32 which provide details on how the margin clause functions. CP 12 32 06 07 B. Margin Clause With respect to property that is subject to a Blanket Limit of Insurance, we will determine a maximum loss payable for each building and for the contents of each building or the contents at each premises. The maximum loss payable is determined by applying the applicable Margin Clause percentage indicated in the Schedule to the value of the property as shown in the latest statement of values reported to us. Actual loss payment will be determined based on

Our Umbrella Programs Give You More Options Preferred Property Program gives you broader, more flexible coverage with a range of limits Fast service and more security are what you get with Preferred Property Program. Our umbrella liability policies are written by XL Insurance with Chubb Insurance Group for excess layer – two of the industry’s most highly rated carriers.

• • • •

A subsidiary of

JGS INSURANCE

Celebrating Our 95th Year

THE BIG “I” VIRGINIA • Fall 2014

Options of $5 to $50 million in umbrella coverage. Hi-Rise apartments up to 35 stories eligible. Developer-sponsored board eligible. Excess of D & O General Liability, Auto Liability, and more.

888.548.2465

info@umbrellaprogram.com

Service is our specialty; protecting you is our mission ®

960 Holmdel Road, Holmdel, NJ 07733

Southern Insurance Company of Virginia

Stays True To Our Chartered Distribution Course

Southern supports the independent agency system Exclusively! Southern recognizes the value of the independent agency system and that’s why we work exclusively through independent agents. Unlike many others in the industry, Southern has no interest in any other distribution channel. Instead, we focus our energy on delivering greater value to our agents through: ✔ competitively priced insurance products ✔ timely underwriting ✔ outstanding claims service ✔ on-going development of state-of-the-art technology Others may choose to travel a different path, but at Southern we will continue to follow our chosen distribution course… The Independent Agency System.

there when it matters most

it re vis om o m p.c arn To le egalgrou r at .don ge Parke 2. w w 1 w ll Jud 7 x1 or ca 468-112 01-80

the amount of loss or damage subject to all applicable policy provisions including the Limits of Insurance Condition, Coinsurance, Deductible and Valuation Conditions. But the actual loss payment, for each building, for the contents of each building or for the contents at each premises, will not exceed the maximum loss payable as described above and will not exceed the Blanket Limit of Insurance. The Margin Clause does not increase the Blanket Limit of Insurance.

of Insurance of $4,500,000. The combined value of these three buildings at the time of loss is $5,000,000. There is a Coinsurance requirement of 90% (.90 x $5,000,000 = $4,500,000); therefore no Coinsurance penalty. The value stated for Building #1 is $1,000,000. The Margin Clause percentage is 120%. The maximum loss payable for Building #1 is $1,200,000 ($1,000,000 x 1.20).

The CP 12 32 also includes three examples (see below) which present different scenarios that show how blanket insurance interacts with coinsurance and/or a margin clause. “Example 1” shows how a margin clause works, where there is coinsurance, but no coinsurance penalty. “Example 2” illustrates how a margin clause applies with no coinsurance – which usually indicates the Agreed Value option was selected (suspending coinsurance). “Example 3” shows how the margin clause works if there is coinsurance, and a coinsurance penalty applies. The bold language below appears in the CP 12 32 endorsement.

The Deductible is $10,000.

EXAMPLE #1 11716 WA IIABA ad.pdf 1 12/18/12 3:55 PM Buildings #1 through #3 are covered under a Blanket Limit

Building #1 sustains a loss of $1,200,000.

Step 1: Amount of loss minus Deductible ($1,200,000 - $10,000 = $1,190,000) Step 2: Since $1,190,000 is not more than the maximum loss payable, we will pay $1,190,000. In this example, the insured’s payment is reduced only by the deductible ($1,200,000 - $10,000 = $1,190,000 paid). This amount is less than the maximum loss payable (scheduled value x margin clause = $1,200,000), so in this loss, the margin clause did not result in any penalty for the insured. However, had the margin clause

you

Personal Umbrella endorsed by IIABA

Utica National starts with Since our humble

beginnings in 1914, we’ve been at the forefront of providing the products and services customers need. One hundred years later, we are still a leader in niche products and offer cutting-edge products like:

Right Pay, E-surity and an easy-to-use small business platform.

What we haven’t moved away from? Listening to you, understanding what is important to you and delivering

on that expectation. Utica National focuses on our

Your clients come in all kinds of shapes, sizes and exposures.

CMY

They all have different risks but they all look to you, their broker, for cost effective coverage. A&M has A-rated admitted and non-admitted multi-markets to cover your client's needs.

We make it simple. We make it easy. We make it fast. Get covered by the A&M Umbrella Man — One Application. Multiple Quotes

(800) 234-6977

www.andersonmurison.com 30

THE BIG “I” VIRGINIA • Fall 2014

or Fax: (323) 255-0957 800 W. Colorado Blvd. Los Angeles, CA 90041 California License #0323106

agent-customers and being here for you, in all ways. Call today to discuss how we can partner together to add value to your agency.

Mark V. Poindexter, Senior Marketing Representative Tel: 301-249-6728 • Cell: 301-395-7366 mark.poindexter@uticanational.com Thomas M. Garcia, CPCU, Senior Marketing Representative Tel: 804-739-4190 or 804-560-6681 thomas.garcia@uticanational.com

Fall 2014 • THE BIG “I” VIRGINIA

been 105%, the maximum loss payable would have been $1,050,000. EXAMPLE #2 Buildings #1 through #3 are covered under a Blanket Limit of Insurance of $4,500,000. The coverage in this example is written without a Coinsurance requirement. The value stated for Building #1 is $1,000,000. The Margin Clause percentage is 115%. The maximum loss payable for Building #1 is $1,150,000 ($1,000,000 x 1.15). Building #1 sustains a loss of $1,300,000. The Deductible is $10,000. Step 1: Amount of loss minus Deductible ($1,300,000 - $10,000 = $1,290,000) Step 2: The result in Step 1 exceeds the maximum loss payable. We will pay $1,150,000, the maximum loss payable in accordance with the Margin Clause. It is very important to note that the margin clause is applicable even where the Agreed Value option is selected

by the insured. In this example, absent the margin clause, the building, which was listed on the Statement of Values (SOV) form at $1,000,000 – but sustains $1,300,000 damage – would be covered for $1,290,000 (amount of loss minus deductible). However, the margin clause x the SOV limit for this building produces a maximum loss payable of $1,150,000. This example clearly illustrates the potentially severe effect a margin clause can have on the amount payable for an insured’s claim, even when the Agreed Value option is selected. But from the insurer’s point of view, since the SOV limit for this building is off by 30%, there is little appetite to pony up the full amount. With the increasing use of margin clauses, some experts have concluded that “the Agreed Amount option is dead.” Solution: accurate SOV limits. EXAMPLE #3 Buildings #1 through #3 are covered under a Blanket Limit of Insurance of $4,000,000. The combined value of these three buildings at the time of loss is $5,000,000. There is a Coinsurance requirement of 90% (.90 x $5,000,000 = $4,500,000); therefore the Blanket is underinsured and there will be a Coinsurance penalty. The value stated for Building #1 is $1,000,000. The

Please judge us by the company we keep! Berkshire Hathaway Group

We are proud of our parentage (and our cousins!) and strive to live up to the family name. To learn more about agency appointments with us, go to:

www.guard.com/apply

Berkshire Hathaway

GUARD

Insurance Companies

Featuring One-Stop Insurance Shopping for Small- to Mid-Sized Businesses We write Workers' Compensation policies nationwide and make available complementary Businessowner's Policy, Commercial Umbrella, Commercial Auto, and Disability coverages in select states. We pride ourselves on our easy submission process; competitive pricing; fast, fair claims handling; cash-flow friendly payment terms; and superior customer services.

THE BIG “I” VIRGINIA • Fall 2014

choosingmemic. Why are more agents and employers choosing MEMIC? When it’s time to choose a workers’ compensation insurer, more insurance agents and employers in the Eastern US are choosing MEMIC. Why? Because as one of the fastest growing workers’ compensation specialists in the country, our expertise, our depth of safety and claims service, and our A (Excellent) rating from A.M. Best offers assurance that MEMIC provides the best long term value. Go to www.memic.com/thechoice to find out more about what MEMIC can offer your clients in manufacturing, hospitality, healthcare, financial services, retail and professional services. www.memic.com

Margin Clause percentage is 120%. The maximum loss payable for Building #1 is $1,200,000 ($1,000,000 x 1.20). Building #1 sustains a loss of $1,200,000. The Deductible is $10,000. Step 1: Amount of Blanket Limit divided by Coinsurance Requirement ($4,000,000 ÷ $4,500,000 = .889) Step 2: Amount of loss times Coinsurance penalty factor ($1,200,000 x .889 = $1,066,800) (the adjusted amount of loss) Step 3: Adjusted amount of loss minus Deductible ($1,066,800 - $10,000 = $1,056,800) Step 4: We will pay $1,056,800 (less than the maximum loss payable). The remainder of the loss ($143,200) is not covered, due to the application of the Coinsurance penalty and Deductible. In this example, the insured will face a coinsurance pen-

alty. However, the resulting payable amount of $1,056,800 (Step 4) is less than the margin clause maximum loss payable, so the insured is not penalized by the margin clause. But, had the margin clause been 105%, the maximum loss payable would have been $1,050,000 (SOV x 105%) vs. $1,056,800. I think you can see now that it is quite plausible your prospect could have had a very unpleasant claims experience due to the margin clause. And it is certainly understandable that he would want to avoid one in his next policy. If you have markets that do not insert a margin clause, all the better. But the best solution is always to have accurate values on the SOV, with annual reviews. As to resource materials for you to review, here are some suggestions. IIABA’s Virtual University has three other excellent articles on the margin clause. Use the Search function and search for “margin clause.” In addition, an often overlooked source for useful insurance information is through a general Internet search (Google, etc.). Among the articles I found on the Internet, here is the best one on margin clauses from VU faculty member and industry legend, Don Malecki: “Margin Clauses Making Agreed Value Options Extinct!” Reprinted with permission of Big “I” Advantage, Inc. and Swiss Re Americas. All rights reserved.

www.siaa4u.com

• • •

Complete Independence Top Tier Profit Sharing Stable Markets

Call Jason Moody in Western VA 888-371-6879 www.msaanetwork.com

Call Jeff Newsome in Central & Southeast VA 910-455-7576 www.siaofva.com Potomac Insurance Network

Why I Joined SIAA-Bran: “Our relationship with SIAA-BRAN has not only opened up new opportunities for us but has actually increased the revenue from our existing business. With over 30 years experience as an Independent Agent, I can definitely say we have found a key to continued success in our industry.” -Mike Dove, Christianburg, VA

THE BIG “I” VIRGINIA • Fall 2014

Call Jon Pappas in Northern VA / DC area 443-692-4000 www.pinsiaa.com Call Beth Roe in North Central VA 423-612-0683 1-866-264-1292 www.meaa4u.com

All roads lead to Interstate.

Interstate Insurance Management, Inc. is now Zurich’s selected insurance provider for Commercial and Public Auto insurance in North Carolina and Virginia. For more than 40 years, we’ve helped retail agents and brokers place a wide variety of Commercial Auto and Public Auto risks. All programs are underwritten by Zurich North America Commercial: • A.M. Best A+/stable rated* • More than 100 years of commercial propertycasualty experience in the U.S. Let us show you how our industry knowledge and underwriting experience can make a difference for you. For more information, contact Donna Rigley at donna@interstate-insurance.com or (704)661-7381.

(07/14) 112003550

These programs are also available in DE, MD, NC, NJ, PA, VA, and WV.

*Rating as of July 30, 2014. For complete rating information visit www.zurichna.com.

Fall 2014 • THE BIG “I” VIRGINIA

THE BIG “I” VIRGINIA • Fall 2014

800-226-3224 www.fcci-group.com

INDUSTRY EXPERTISE. PERSONAL SERVICE. “At FCCI, we keep our customers informed. I get to know agents and policyholders and they get to know me, so they know who to call for help. They know I’ll give them great service!” Katrina Turner Senior Underwriting Technician FCCI Southeast Region Duluth, Georgia Now, let’s talk about your business. General liability • Auto • Property • Crime Workers’ compensation • Umbrella Inland marine • Agribusiness • Surety Coverage available in 18 states. © 2014 FCCI

BIV14_Turner_7.675x4.9.indd 1

7/14/14 12:00 PM

We’ll get to know your small business clients almost as well as you do.

unite is Eastern’s fresh approach to workers’ comp insurance for small business. unite coverage, backed by Eastern‘s “A” A.M. Best financial strength rating, is individually underwritten for each business’ specific needs. Your clients can take advantage of ecovery®, our innovative holistic Return-to-Wellness program, and ParallelPay®, our pay-as-you-go, cash flow friendly payment system. Learn more about how your clients can benefit from joining the unite community. SM

Contact David Cox,

Regional Marketing Director

at 336-674-3930. ecovery and ParallelPay are registered trademarks and unite is a registered service mark of Eastern Insurance Holdings, Inc.

Fall 2014 • THE BIG “I” VIRGINIA

Overview:

Standard vs. Non Standard Admitted vs. Non Admitted By Garry Floyd

common question when dealing with insurance is “What are the differences between Standard and Non-Standard policies, and also Admitted and Non-Admitted insurance carriers?” I will attempt to give a brief overview to highlight some of the differences for these classifications, and to also clear up any myths that there may be regarding these terms and policy types. Standard policies are insurance policies that are written on policy forms that have been approved by the insuring state. These policy forms tend to be similar to most other standard companies in terms of what they cover and the cost of coverage. Standard policies also have limited underwriting guidelines, so they are more suitable for insureds that have a good insurance history, and for those who are considered to be low risk. A standard insurance policy is generally issued by an Admitted insurance carrier. Non-Standard policies are also written on policy forms that are approved by the state, but they vary from company to company in their terms and pricing, due to the broader range of risks that they cover. Non-standard policies are mostly issued through Non-Admitted or Excess & Surplus carriers. E & S carriers are financially stable companies that are regulated in the state(s) that they operate in. In addition, they require specific reporting procedures and supporting documentation that must be submitted to the state. Non-standard policies are not considered to be second-rate, as they offer the same coverage as a standard policy. They differ in that they can offer a broader range of insurance products for insureds that may not be accepted otherwise. An Admitted carrier is a company that must conform to regulations of the state’s Department of Insurance. Admitted carriers must also file their rates with the state in order for them to be approved. In addition, they are 38

THE BIG “I” VIRGINIA • Fall 2014

required to contribute financially to the state’s guarantee fund. This fund is in place in the event of an admitted carrier’s insolvency; the state then has the responsibility to pay an insured’s claim up to the state’s specified limits. Non-admitted carriers do not operate within a state’s insurance laws. Non-admitted carriers also do not have to file their rates with the state, so they are able to have more pricing flexibility. These carriers are able to insure higher risks that admitted carriers would rather not cover. If a non-admitted company becomes insolvent, there is no guarantee that an insured’s claim will be paid. An agent cannot legally write a policy with a nonadmitted company unless there are no other admitted options. The agent/producer is required to perform due diligence and check with 3 admitted carriers in order to provide a quote for the insured. If the risk is declined by 3 admitted carriers, it can then be placed with a nonadmitted carrier. Admitted and Non-Admitted classifications have nothing to do with the financial status of the company. The financial quality of a company is determined by its rating on the A.M. Best Ratings chart that is used for insurance companies. The main differences between admitted and nonadmitted companies are the regulations that each must follow. Due to the various regulations, you may not be able to get a certain type of policy from an admitted carrier, which you would be able to get from a nonadmitted carrier and vice versa. I hope this helps clarify the differences in these policy and company types. If you are not sure about the classification of your quotes or policies, it is always advisable to consult with your underwriter for clarification. It is also recommended that you find out if there are any additional fees or taxes, and whether any additional forms may be needed from your agency.

Partners.

You and your clients. You and Harford Mutual. We’re committed to protecting their business and building yours. That’s what mutual success is all about.

Explore P&C insurance opportunities at Umbrella Agent VA.pdf 1 1/29/2013 www.HarfordMutual.com

9:51:11 AM

Recent Recent Changes Changes in in the the Market Market Left Left You You Standing Standing in in the the Rain? Rain?

Dry Off With AMERISAFE. Workers’ Comp for Working Working People People!

To partner with us, call 800.381.9348 or visit our website at www.amerisafe.com.

Fall 2014 • THE BIG “I” VIRGINIA

By Daniel J. Struck and Neil B. Posner

Insuring for the Business Risks of a Cyber World

t might be tempting to assume that your business is unlikely to face any significant exposure to so-called cyber risks. But this likely is not the case. In fact, organizations of all sizes and shapes are facing new and potentially significant challenges posed by these types of threats. It is important to keep in mind that exposure to potential cyber-liabilities is not limited to technology companies, major financial firms and national security targets. Your business faces technology-related risks if it advertises on the internet, stores customer records electronically, uses point of sale terminals to process credit card payments, uses software that is hosted remotely on the “cloud,” or would suffer downtime if other businesses with which it conducts transactions or has relationships have computer outages. In other words, cyber-risk is a part of doing business in the modern world. As with any business risk, careful planning to prevent unduly hazardous situations or behavior, along with the adoption of responsible business practices, is the first line of defense in the increasingly virtual marketplace. There are a multitude of measures that can be taken to prevent or minimize potential cyber-risks. Some common defensive measures include instituting adequate

password protection protocols, quarantining unverified communications from external sources, implementing firewalls around sensitive information, backing up data, monitoring for viruses and other malware, and verifying that hosted business solutions meet suitable security standards. No matter how robust, no defense is ever completely impregnable. Cyber-risks are continually developing and efforts to defend against potential attacks remain at least a step behind the evolving tactics of potential assailants. The Broad Spectrum of Potential Cyber-Risks Cyber-risks come in a wide array of forms, ranging from temporary or minor website disruptions to attacks that can shut down a business altogether. The following are some commonly identified risks: • Loss or theft of mobile devices, tablet computers, memory sticks, thumb drives or other mobile communication or transaction equipment and any resultant consequences of unauthorized access, theft or the unauthorized use of data • Phishing attacks in which criminals troll the internet posing as legitimate businesses in an effort to obtain confidential or sensitive information Fall 2014 • THE BIG “I” VIRGINIA

•

• •

•

Malware attacks intended to take over software or hardware control systems whether for the purpose of sabotage, extortion, the theft of business proprietary information or criminal mischief The use of electronic means to disseminate false, misleading or damaging information intended to damage the reputation of the target Extortion or blackmail attempts using the threat of launching an attack through any of the foregoing methods Attacks by disgruntled customers or employees using any of the foregoing means Attacks on cloud computing networks and hosted data repositories in which attacks potentially can spread across enterprises Attacks motivated by political or social activism, whether by sophisticated provocateurs or amateur mischief makers (the protest-oriented hacker collectives that have received attention in the news media in recent months are an example of this kind of attack) Advanced, persistent threats in the form of business or sovereign-sponsored espionage (such as the targeting and harvesting of sensitive competitive proprietary business information) or sabotage (such as feared potential attacks on the power grid or pipeline networks)

With Interconnectedness Comes Exposure Maintaining information on a computer network or in a hosted or cloud-based environment provides tremendous convenience, efficiency and cost savings, but it also poses risks. These risks are not limited to the direct exposure of a business to the types of risk noted above. Given the interconnectedness of the modern business world, there is also a significant likelihood of collateral damage. If someone with whom you exchange information electronically or upon whom your business relies is the victim of a phishing attack, for example, that attack may spread to you. Similarly, if there is an interruption that shuts down the operations of a host site on which you rely to conduct business, your business also may be interrupted. The potential impacts of these risks range from nuisances to enterprise endangering threats. Without being exhaustive, the list of exposures that might result from these cyber-risks includes the following: • Theft of money and other property from a business or its customers • Loss or disclosure of business sensitive information • Damage to the reputation of a business • Liability for publishing inaccurate or derogatory 42

THE BIG “I” VIRGINIA • Fall 2014

• •

•

• •

statements about another person or business Physical damage to computer systems or other property Loss of business resulting from downtime due to damage to one’s own information systems, the inability to access remotely hosted systems, and other interruptions to business Liabilities and/or penalties resulting from the disclosure of confidential or personal customer or employee information Cost of correcting any breaches in system security Cost of providing customers with mandated notification of possible information breaches and any required subsequent curative measures

The potential losses associated with cyber-risks include first-party risks of loss (i.e., the risk of loss or damage to an insured’s own property or interests), business interruption risks (i.e., the risk that business will be disrupted because of the loss or corruption of data, or the inability to access data whether the interruption is because of physical or “virtual” damage to property) and third-party liability risks (i.e., the risk that an insured will be legally liable to another party).

Want to partner with a reliable agency? Ready to sell your insurance agency? Want to retire, or sell part of your book? Or are you ready to expand your services and products? If you answered yes to any of these questions, contact me:

Judy Dodds

Business Development Manager 302-299-4776 jdodds@aaamidatlantic.com

Protecting Against Potential Cyber-Risks As noted, the first line of defense in protecting a business against the risks of the virtual marketplace is the adoption of good business practices. But with the constantly evolving nature of business conduct, it is not prudent to assume that good business practices, including a robust defense, are sufficient to completely eradicate the exposure to cyber-risks. Of course, this observation is qualitatively no different than acknowledging that good workplace safety procedures do not eliminate the risk of workplace accidents or that establishing fire protection procedures do not eradicate the risk of fires. Likewise, the available solutions to the fact that our best laid plans are oft laid astray are little different in the world of cloudbased business than they are in the brick and mortar marketplace. Measures that a business can use to address the continuing risk of loss or liability include the following: • Contractual indemnifications and/or disclaimers of liability with service and software providers and/ or customers • Insurance for the purpose of making the insured whole for the risks insured against • Retaining the risk based on the assumption that

the potential loss or liability can be borne by the business without catastrophic consequences Traditional Insurance Policies May Provide Some Protection A careful and honest assessment of the risks facing a business and the magnitude of those risks is necessary in order to determine responsibly what combination of risk management tools is most suitable for a particular business. For possible reasons ranging from the seeming novelty of cyber-risks, to the developing bases of cyberliability, or because many businesses have yet to incur significant cyber-liabilities, the majority of businesses continue to self-identify as self-insuring in this regard and do not purchase stand-alone cyber-liability insurance. If the choice to remain self-insuring with regard to cyber-liability is the result of an assumption that cyberrisks are important only to technology or high-profile companies, it is based on an erroneous assumption. At a minimum, good risk management practices dictate that businesses conduct a focused self-assessment of their potential cyber-risks both direct and indirect, the magnitude of the associated potential exposures, and their ability to absorb potential losses or liabilities. Not every business will determine that it needs stand-alone

We’re here when you need us.

Run your business effectively with AIM

As a Managing General Agent specializing in the placement of insurance products in traditional and challenging risks, our experienced group of insurance professionals get you the information, rates, coverage and documentation you need, right away, and within budget. We understand you have objectives to meet for your business and your clients, AIM gives you the tools to meet those needs. Find out what Agents Insurance Markets can do for you!

Visit us online at www.aim-ins.com p: (804) 285-4930 • tf: (800) 627-0505 • f:(804) 285-4945

A Bloss & Dillard, Inc. Company

Fall 2014 • THE BIG “I” VIRGINIA

cyber-liability insurance, but that decision should not be made by default as a result of ignoring the issue. For some businesses, the web of coverage provided by insurance policies other than stand-alone cyberliability insurance may be sufficient for their needs. In some circumstances, insurance policies that are not expressly written as cyber-policies may provide coverage for certain categories of cyber-liabilities. Among the types of insurance policies that may insure for some categories of cyber-liabilities are comprehensive general liability, first party property, employment practices liability, errors and omissions, and fidelity insurance policies. These kinds of insurance policies typically contain coverage terms such as the following that might apply to some types of cyberliabilities: • Comprehensive general liability policies typically provide coverage for “personal and advertising injury.” Under some circumstances, the disclosure of information about a third party for which there is an expectation of privacy may be personal and advertising injury. • First-party property policies may provide coverage for the damage or destruction of equipment or even of electronic data. These policies also may provide coverage for business interruption loss resulting from such damage or destruction. Under some circumstances, first-party property insurance also may provide business interruption coverage for losses resulting from damage to third-party property on which the insured is dependent. • If personal employee information is exposed or disclosed, there may be coverage under some EPLI policies to the extent that those policies provide coverage for liabilities resulting from the unauthorized disclosure of confidential employee information. • For companies in the business of providing technical, support or security services, errors and omissions liability insurance policies may provide coverage to the extent that negligence or the failure to act with due care on the part of the insured results in cyber-related injury, such as a security compromise or the disclosure of protected information, to a customer in a manner for which the insured can be held liable. • Fidelity policies may provide coverage for the loss of money or other property caused by the unlawful conduct of an employee or for such losses caused by unauthorized system access by a non-employee under some versions of a funds transfer fraud coverage extension. 44

THE BIG “I” VIRGINIA • Fall 2014

Before assuming that this cluster of insurance policies provides an adequate level of protection, it is important to become familiar with the terms, conditions and exclusions of those policies. Depending on the policy conditions, the scope of coverage provided for a particular cyberrisk may be limited. The patchwork of different coverage grants in different insurance policies may leave gaps in coverage or may pose difficult coordination issues. In addition, cyber-liabilities that would otherwise be covered under a traditional insurance policy might be subject to an exclusion that bars coverage. Moreover, if a business determines that its risk profile for cyber-liabilities is such that it is adequately protected with insurance policies other than stand-alone cyber-liability insurance, it is important to keep in mind that the risk management environment for cyber-risks is developing and changing. In reaction to the developments in the environment for cyber-risks, insurers have sought to introduce new limitations and exclusions to traditional insurance policies. For example, a cyber-risk for which coverage was provided under previous first-party property policies may become subject to exclusions added in subsequent policy years. It should not be surprising if insurers continue to respond to the possibility of coverage for cyber-risks under traditional insurance policies by adding increasingly restrictive policy conditions and exclusions. Thus, continued diligence and attention to developments in both the risk environment and the insurance marketplace are imperative if a business chooses to insure for cyber-risks through the coverage provided in its existing insurance programs. Cyber-Liability Insurance Coverage Can Fill the Gaps—With Appropriate Diligence If a business decides that it would be prudent to buy cyber-liability coverage, the work facing a risk management decision-maker is still incomplete. In the cyber-liability insurance marketplace, one size does not fit all. Cyber-liability policies are not fungible commodities that can be differentiated only by price. Cyber-liability insurance policies are relatively new products and there is no such thing as a “standard” cyber-liability insurance policy. Just because an insurance policy is called a cyberliability policy, it does not necessarily follow that the policy covers all kinds of cyber risks or all of the types of exposure to those risks. There are wide differences in the scope of coverage provided by the available cyber-liability policy forms, and different policy forms may respond to very different categories of risk or may contain very different terms and conditions. Unlike some other types of insurance, there

is not yet any broad consensus in the marketplace about the basic essentials of the terms and conditions in the cyber-insurance marketplace and insurers are still developing new policy language. Therefore, a prospective insured should pay serious attention to the terms of the available coverage and make a determined effort to assess which available option best fits its needs. In addition, cyber-liability insurance policies frequently are offered with a wide range of coverage options or modules from which a prospective insured can select. Thus, when purchasing cyber-liability insurance, it is extremely important for the potential policyholder to assess its risk profile, to identify the scope of the available coverage options, and to select the coverage that best responds to its particular needs. There is no single solution for addressing the developing challenges posed by cyber-related risks. Those risks and the potential liabilities associated with those risks are continuing to change and develop and the risks faced by every business are different. But pretending that these risks do not exist is not a viable option in the increasingly networked and interconnected business world. Addressing these risks requires careful planning, the responsible assessment of the risks facing a particular business, and consideration of the business and legal consequences of the available risk management tools. Moreover, planning for how to manage cyber-risks is not a onetime event, rather it is an ongoing process requiring adjustment and reconsideration as the risks facing a business and the available risk management tools continue to evolve.

RELATIONSHIPS IT’S WHY WE STAND OUT FROM THE CROWD

“Relationships are how we do business. We are working toward a common goal and when we are all on the same page we can work more efficiently. It is important for me to be easy to work with and do quality work.”

Thomas Tobolic Claims Representative

About the Authors: Daniel J. Struck, is Co-Chair of the firm’s Policyholders’ Insurance Coverage group, represents corporate and individual policyholders throughout the United States in insurance coverage litigation and provides counsel regarding complex insurance advisory matters. Dan can be reached at 312.521.2736 or dstruck@ muchshelist.com. Neil B. Posner, Co-Chair of the firm’s Policyholders’ Insurance Coverage group, focuses his legal practice in the area of insurance coverage, with specific emphasis on insurance recovery and dispute resolution, risk management, loss prevention and cost containment. Neil can be reached at 312.521.2623 or nposner@ muchshelist.com.

Managing General Agency Since 1920

800.666.5692

jmwilson.com

Property/Casualty • Professional Liability • Surety Commercial Transportation • Personal Lines • Premium Finance

(Reprinted with permission from Much Shelist, P.C.)

Fall 2014 • THE BIG “I” VIRGINIA

EXPERTISE YOU CAN LEVERAGE. ITâ&#x20AC;&#x2122;S THAT SIMPLE.

For thirty years, Builders Mutual has been working hard to make your job easier. Agent tools like BOB 2.0 allow you to issue and service policies online with ease. When youâ&#x20AC;&#x2122;re quoting residential, commercial and trade contractors, the insurance choice is simple.

Stay connected. buildersmutual.com

Good people Make great partners!

Quote a middle market account with Harleysville, and watch your circle of trusted advisors grow in a hurry. First, there’s your field underwriter, who’ll understand your client’s business and recommend the right coverage. Next, your risk services specialist, who’ll assess the hazards of your client’s operation and propose solutions to address the challenges. And finally, when the account is especially large or complex, our claims business consultant can meet with your client initially, then later to discuss specific losses and trends. For contractors, manufacturers, wholesalers and more, team with our middle market professionals once and you’ll call us again and again. To learn more about this and other benefits of a Harleysville appointment, call 800-523-6344, ext. 5016, or visit our website.